Law of Diminishing Returns

Question 1

When does the LODR is a phenomenon that will affect a business in the …

Answer 1

short run

Question 2

What is the Short Run

Answer 2

a period of time when there is at least one fixed FOP

Question 3

In the short run normally how many fixed FOP are there and whata re they called

Answer 3

2

land capital

Question 4

As land and capital are usually fixed, the only way to increase output is to

Answer 4

increase labour

Question 5

What do we assume about Labour

Answer 5

it’s our variable FOP

Question 6

LAW OF DIMINSHING RETURNS

Answer 6

In SR when variable FOP i.e labour are added to a stock of fixed FOP (capital,land) total marginal product will initially rise then fall

Question 7

What is the equation for marginal product

Answer 7

change in Total Product(output) / change in teh quantiy of workers

Question 8

How do we work out average product

Answer 8

total product/quantity of workers

Question 9

What does marginal product(output ) mean in LODR

Answer 9

extra output when we employ 1+ worker/VARIABLE FOP

Question 10

describe how the AP curve is shaped

Answer 10

rises intitally then starts to fall
so wide upsdie down C

Question 11

Describe how MP curve is shaped

Answer 11

intially rises then starts to fall more steeply than average product
goes below 0

Question 12

When drawing the MP and AP curve together what is key

Answer 12

MP has to cut AP at the highest point

Question 13

Why does MP increase initially

Answer 13

when we employ first few workers we see increasing returns to labour,(they’re bringing more output than last worker employed)

MP is rising as Labour Productivity is increasing due to specialisation and underutilisation of our fixed FOP

Question 14

Explain why specialisation occurs in the first half of the MP+ AP curve

Answer 14

when we employ 2nd worker he learns from 1st on how to make pizza faster and this process happens when we employ 3rd worker and so on

they also specialsie as could be doing sauce other toppings , other on ovens etc

Question 15

why is there under utilisaiton of fixed FOP

Answer 15

i.e
3 ‘excess’ ovens(capital)
there’s three ovens + enough workspace for 3
when we employ 2nd they use excess workspace

under utilisaiotn of FFOP + Specialisation so LP rising therfore MP increasing

Question 16

when we employ 4th worker why does LP star to fall

Answer 16

Fixed FOP become constraint on production
menaing not enough FFOP + worksapce to take more than 3
so workers begin to get in way of each other
affecting eachothers output
so LP falls as a result

Question 17

theory for MP and AP work in the

Answer 17

same way

Question 18

Total Product increases but

Answer 18

at a slower rate before it starts to fall

Question 19

when is TP maxed

Answer 19

when MP=0

Question 20

Explain why TP maxes at 0

Answer 20

if MP-ve TP will be falling so TP won’t be maximised

if MP +ve each next worker will be bringing more output so TP will keep rising so can’t be maxed at this point

so only point TP is maxed is when no more MP is left as there’s noc hance for increases or decreases in it /MP?

Question 21

What is on the axis of the TP , MP and AP curve

Answer 21

y axis - output
x axis - quantity of workers(variable FOP)

Question 22

where do we draw the TP curve

Answer 22

under the AP and MP curve

Question 23

Why do we draw/align the peak of the TP when MP hits 0/x axis

Answer 23

cause TP maximised when MP = 0